Brief Growth Ideas: Drill Results Confirm High-Grade Mineralisation (Flash Note) and more

In this briefing:

1. Drill Results Confirm High-Grade Mineralisation (Flash Note)
2. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data
3. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
4. Koolearn (新东方在线) Trading Update – A Wobbly Start
5. Denso Continues to Strengthen Its Investment CASE with Acquisitions

1. Drill Results Confirm High-Grade Mineralisation (Flash Note)

• Significant thick, high-grade Zn/Pb intersections with substantial by-products
• X-sections highlight ore thickness variability
• On schedule for maiden Resource mid-June incorporating both S. Nights and Wagga Tank
• Current drill programmes to be completed within a month
• Employing VMS structural and geochemical specialists for future exploration vectoring
• Maintain Speculative Buy Recommendation

2. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data

• The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
• AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
• This seems a better outcome on fees than the market expected – at least in the near term, as fees are still on the political agenda – and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
• Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
• The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
• Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the “fee relief”; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks

3. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

4. Koolearn (新东方在线) Trading Update – A Wobbly Start

Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

• Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO
• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

5. Denso Continues to Strengthen Its Investment CASE with Acquisitions

Denso Corp (6902 JP) announced this month that it has invested in the Seattle-based connected vehicle services pioneer- Airbiquity Inc. Airbiquity is one of the leading companies in the connected vehicle services sector and has been one of the companies that has continuously developed automotive telematics technology. This investment made by Denso follows its investment made in Quadric.io this year ( Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims). As we previously mentioned, Denso is in full swing in its development in the autonomous driving field and next-generation technologies development. Thus, it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. According to Denso, its investment worth $5m in Airbiquity is expected to accelerate the development of over-the-air (OTA) systems for wirelessly updating automotive software from a remote location. OTA systems are methods of distributing new software, configuration settings, and providing updates to the electronic device in use, for instance, a car navigation system in a vehicle. These OTA systems which have been increasingly used to update the software of such multimedia products in a vehicle are now gaining more prominence given the emergence of next-generation technologies such as electrification, EV and connectivity. We also believe that Denso’s Stake in Airbiquity is likely to accelerate Denso’s transition in its business model to be a leading software solution provider. Thus, its series of investments such as in Tohoku Pioneer EG, JOLED, ThinCI, Quadric, and now Airbiquity are indicative of the decisiveness of its change in business model and moves towards achieving next-generation technology leadership.